You may be retired, considering retirement or are just curious about how to access your MNDCP savings. How and when might your account balance be paid out? What options are available to you?
The answers to these questions and more can be found here.
You are eligible to access the money in your MNDCP account at any age once you end employment (whether by retirement, resignation, permanent disability, or termination).
Distributions may begin 30 days after your termination date.
Returning to work?
If you return to work with a Minnesota public employer and commence contributing to your MNDCP account, you are not eligible to take a withdrawal from your MNDCP account until you end employment.
Once you are eligible to take a distribution from your MNDCP account, you have several options to access your money in a way that best fits your retirement income needs.
"Stay Put" If you are not ready or don't need to take a distribution from your MNDCP account, you can stay in the Plan and postpone account distributions.
Lump Sum Distribution Withdraw your entire MNDCP account balance and your account is closed.
Partial Distributions Withdraw a portion of your account balance whenever you wish.
Periodic Payments Establish a series of scheduled withdrawals (monthly, quarterly, semi-annually, or annually).
Rollover Move all or a portion of your MNDCP account to another retirement plan or IRA; however, if you're happy with the service and features you get with your MNDCP account, there's no need to roll over your account balance to another retirement account or IRA.
Purchase an annuity (pdf) Rollover all or a portion of your MNDCP account to purchase an annuity through our Annuity Rollover Marketplace.
Combination Select a combination of distribution options (partial, periodic payments, rollover) that best meets your specific retirement income needs.
For more information about payout options, see page 9 of the Retirement Guide (pdf).
Withdraw pre-tax money from your account
The pre-tax dollars you contributed to your MNDCP account lowered your taxable income for that year. Reducing your taxable income means lower taxes paid to the IRS at that time.
Of course, your tax liability wasn't eliminated. You merely postponed the taxation of your money. Withdrawals from your pre-tax balance are subject to federal and state income taxes. By law, MNDCP must withhold 20% federal income tax on withdrawals, except for periodic withdrawal schedules that last more than ten years.
Withdraw Roth after-tax money from your account
When you contributed Roth after-tax dollars, you paid taxes before you contributed them to your account. Withdrawals from your Roth after-tax balance are classified as "qualified" or "non-qualified and are taxed differently.
A "qualified" withdrawal from your Roth after-tax balance is entirely tax-free if the withdrawal is made:
- on or after age 59½ (or upon your death or disability),
- after you have had money in your Roth account for five tax years.
If both requirements are not met, then a withdrawal from your Roth after-tax balance is considered "non-qualified." "Non-qualified" withdrawals are subject to 20% federal income tax withholding on the portion of the withdrawal that represents earnings only. The contribution portion of the withdrawal is always tax-free since taxed were already paid.
Tax form 1099-R
Form 1099-R reports all taxable income you received from your MNDCP account and any state and federal taxes withheld. You will need this when filing your annual tax return. MSRS will mail your 1099-R by January 31 of the tax year following your distribution. Form 1099-R is available when you log in to your Account Online.
Neither MSRS nor any of its representatives are able to provide legal or tax advice.
No IRS early withdrawal tax penalty
One advantage the MNDCP has over other types of plans (403(b), 401(k), IRAs) is that withdrawals are not subject to the IRS 10% tax penalty usually assed on withdrawals made before age 59½. If you roll over your MNDCP account assets to other types of plans, the early withdrawal tax penalty may apply.
Whichever distribution option you choose, the proceeds can be deposited directly into your financial institution checking or savings account.
Direct Deposit is a secure and convenient way to receive your payment. To set up direct deposit, please complete the Direct Deposit form (pdf).
You have the option to receive your distribution by check made payable to you and mailed to your address on file; however, we strongly encourage you to consider direct deposit when establishing a periodic payment, which is more secure and faster than a paper check.
A required minimum distribution (RMD) is the amount of money the IRS requires that must be withdrawn from a retirement plan each calendar year beginning the year the account holder reaches age 72 (or age 70½ if born before July 1, 1949). RMDs are taxed as ordinary income.
Recent legislation that affects RMDs
On March 27, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The bill includes a provisions to waive RMDs for calendar year 2020. To learn more, see CARES Act: How it Affects 2020 RMDs.
Effective January 1, 2020, the Internal Revenue Service (IRS) changed the RMD mandatory start age from age 70½ to age 72.
The RMD amount is determined by IRS regulations and is calculated by dividing your account balance as of the prior calendar year-end by your life expectancy, so it changes each year. The calculations are similar to those that apply to IRAs but RMD's must be taken independently from other retirement plans, including IRAs. You may withdraw amounts greater than the minimum, but are not required to do so. Each fall, we will calculate your RMD and mail your information and the options.
Your first RMD
You have the option to delay your first RMD until April 1 of the following year. If you delay, you will then be required to receive two payments in the same year. Since RMDs are taxable income, receiving two payments in the same year may result in a higher tax liability.
Working beyond age 72
You may postpone taking RMD payments from your account, regardless of your age, as long as you are still employed by the State or participating employer. If you work past age 72, you must begin payments of your account by April 1 of the calendar year following the calendar year in which you retire.
Request an RMD
To request the necessary form for selecting your payment and method or to change a previous election, Contact Us.